Difference Between Corporation vs LLC
While one is trying to decide between business types that he wants to incorporate, most business owners will get perplexed between Corporation vs LLC. The latter will combine 2 kinds of business, is a corporation and partnership. On the other hand, the former would mean Incorporated (Inc), representing the form of a corporation, such as C Corp or S corp.
A Corporation and limited liability company (i.e. LLC) are 2 different company structures with unique tax requirements. It will not matter which entity type one will choose because being incorporated will add legitimacy to one’s business, specifically how one’s business will be perceived in the market.
A limited liability company (i.e. LLC) is a form of business structure that offers protection via personal liability and a few tax benefits. The “LL,” or say the limited liability, in the term LLC is what will protect one’s personal assets in the event of judgment going against one’s company. Traditional corporations further do offer limited liability which should be noted well.
On the other hand, Corporation is an artificial person who is a separate legal entity that is treated independently of its members (also called as shareholders), having its own obligations and rights, perpetual succession, limited liability, and does hold property in its own brand name.
Head to Head Comparison between Corporation vs LLC (Infographics)
Below is the top 8 difference between Corporation vs LLC :
Key Differences between Corporation vs LLC
Both Corporation vs LLC are popular choices in the market; let us discuss some of the significant differences Between Corporation vs LLC :
- A private company that will merge the combined features of a partnership firm or the corporation is called Limited Liability Company or LLC. On the other hand, Inc. is an acronym that will be used for the term “Incorporated” and is also used as a suffix in the corporations’ brand name, which denotes a business entity registered under the statute or the law.
- An LLC can be termed as a privately held corporation, but a corporation, on the other hand, is a publicly-traded corporation.
- The Limited Liability Company owners are the members, whereas the shareholders are the corporation’s ultimate owners.
- LLC will offer more flexibility than a corporation. There is no bar or limit on the maximum number of members in a Limited Liability Company. On the other hand, an S Corp., a type of corporation, can have only a hundred members.
- A corporation is subject to stringent record-keeping and legal formalities. However, when one comes to Limited Liability Company, the record-keeping and the legal formalities are lenient.
- The best and the key feature of LLC is pass-through taxation as stated earlier, the LLC’s income will be taxable in the hands of its owners’ post distribution. On the contrary, a corporation will have to face double taxation. First, it will be taxed at the corporate level and then at an individual level, when the income or the profit is distributed to shareholders of the corporation as the dividend.
- The annual reports of a corporation should be submitted timely to the appropriate authority as per the law’s requirements. Unlike a corporation, LLC wherein the filing of annual reports or annual financial statements, with the appropriate authority is not required.
- The Annual General Meeting (i.e. AGM) should compulsorily and mandatorily be held by a Corporation that is Incorporated. As against this, the holding of an AGM is not mandatory, for an LLC or Limited Liability Company.
Corporation vs LLC Comparison Table
Let’s look at the top Comparison between Corporation vs LLC –
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| The basis Of Comparison Between Corporation vs LLC |
Corporation |
LLC |
| Basic Definition | Inc. will expand to the term Incorporation, which implies the legal process of creating a corporation. | A Limited Liability Company or LLC can be termed as a private company, that will incorporate the combined features of a partnership firm and a corporation altogether. |
| Owners | Shareholders are the major owners of the corporation. | Partners or the LLC members can be said to the owners. |
| Legal Formalities | To incorporate an Inc., one needs to go through a lot of legal formalities. | There are also legal requirements but comparatively lesser than a corporation. |
| Meeting requirements | Corporations must hold an annual general meeting and must be held within the time frame provided in the statute. | While LLC can also hold meetings but that’s Suo moto. |
| Law requirements | Corporation laws or statutes will require a board of directors, quorums, meetings, minute keeping, and many other management “formalities”. | LLC laws or statue don’t require any of those formalities. |
| Income distribution | A corporation will distribute its income that it earned to its shareholders on a per-share basis. | On the other hand, LLCs have greater flexibility in finalizing how to distribute their income or split their financial interests. An LLC can further distribute its income to every member based on their capital contributions, or equally or in many other ways. |
| Stock issuance | Corporations can offer and issue stock options and stock and bonuses or incentives to managers and employees. | LLC cannot issue stock options or common stock. |
| Taxation | A corporation will be taxed for federal income tax purposes in either of the 2 ways. Further, it can be taxed either as an S corporation or a C corporation. | By default, an LLC with a single member will be taxed as if it is a sole proprietorship, and if an LLC has more than a single-member then it will be taxed similarly as a partnership. Thus, LLC is treated as a pass-through entity. |
Conclusion
Corporation vs LLC both offers their unique benefits and certain similarities. Both Corporation vs LLC provide limited liability protection as every coin has 2 sides, including corporation and LLC. In an LLC, there is no limit on the count of members; the business income or profit will pass through the member’s personal income tax return. Further, it cannot issue common stock to raise the required funds from the marketplace. To the contrary, corporations will be authorized to make the public issue (i.e. IPO) and the splitting of corporate income that lessens overall tax liability. Still, the cascading effect is present in the taxation of such legal entities.
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